Transcript: National Security Adviser Gen. James Jones and Sen. John McCain, R-Ariz.

May 10, 2009

Page 11 of 15

REICH: Absolutely. And I think that when we talk about -- or
anybody talks about hitting bottom, what we really have to understand
is that the bottom is a kind of an undefined concept here. We don't
know what a recovery is because we can't go back to the old economy
which was based on debt and Wall Street getting out of control. So
what is a recovery? What is a kind of the economy of the future?
Nobody knows.

(CROSSTALK)

STEPHANOPOULOS: ... first of all.

WILL: Well, that's right. And the trouble is the American
people, in their native perversity, have started to save money. It's
the same exact...

(CROSSTALK)

WILL: ... 4 or 5 percent? And since 70 percent of our economic
activity in what we used to call normal times is personal consumption,
is that compatible with ...
DONALDSON: That is exactly what a recovery is. Some guy said I
saw a quote in the paper I use this test, do I want it, do I need it?
And if I don't need it I don't buy it. We have to get to the point
where people buy what they want.

REICH: George puts his finger on what is the real dilemma here.
And that is what is rational for the family in terms of saving money
is irrational from the standpoint of the economy as a whole. The
banks that survive the stress test, for example, are they going to go
back to lending like they did before? They can't possibly.

STEPHANOPOULOS: Let me press you on that for a second. Because
a lot of economists like Paul Krugman on this program, like you, like
Joe Stiglitz, Nouriel Roubini, thought there was no way that this
approach that the administration was taking was the right course. You
believed that we should go in more radical, temporarily take over the
banks. Can you now say, though, that the Geithner approach, the more
tempered approach was right?

REICH: Well, what we can say on the basis of very preliminary
evidence is that the stress tests have fulfilled the goal that they
set to fulfill, which was to reassure potential investors in a bank.

(UNKNOWN): Public relations.

REICH: No. It's confidence. It's to make sure and reassure
potential bank investors that there are not worse problems hiding
there.

ROBERTS: But there are ...

DONALDSON: ... not stressful enough.

REICH: It's a distinction. It's not the same thing as ...

ROBERTS: But there are worse problems, is Fannie and Freddie,
which are in terrible shape and going to need even more ...

STEPHANOPOULOS: $19 billion, right?

ROBERTS: More and more government infusion. At the same time
you're saying, oh, well, gee Bank of America only needs $34 billion
...

DONALDSON: And the stock went up $1.26.

ROBERTS: Then you still have these now have been taken over by
the government needing government infusion.

STEPHANOPOULOS: That's all true. Right now there's about $110
billion in the TARP, in the rescue fund. Some banks are maybe going
to be giving money back, JPMorgan is going to be giving money back,
Goldman Sachs is going to be giving money back.

That number is actually going to go up before it goes down.
Maybe some of it has to go to Fannie Mae and Freddie Mac, maybe some
to GM. But you're going to have probably a pot of money of about $100
billion, there, George Will, that may be available for either more
bailouts or more government investment or spending.